Our Investment Commentary for Q1 2016 (1 January – 31 March)

Our Investment Commentary for Q1 2016 (1 January – 31 March)

Global equities experienced a sharp sell-off at the start of 2016, reflected by the FTSE World index which fell 12% in January. Due to weak sterling, however, returns for UK investors on the global index were virtually unchanged in Q1. The rebound in February and March was driven by less pessimism over China, rallying energy prices and hopes that central banks will continue to stimulate growth with low interest rates and other supporting measures.

Janet Yellen, head of the Federal Reserve, announced she will ‘proceed cautiously’, indicating interest rates are likely to stay low for longer. This came after strong jobs data and an upward revision of GDP for Q4 2015. The effect of the Fed’s policy is to halt the rise of the dollar, boost commodity prices and keep bond yields low. This increases the relative attractiveness of equities. Gold has had its best quarter for nearly 30 years, gaining almost 16% since the start of 2016, and oil has risen 40%.

The Eurozone economy remains sluggish, growing at just 0.3% in the Q4 of 2015. The ECB made a move to cut interest rates and boost QE further, but there is a worry that Mr Draghi, head of the ECB, is running out of options. The Euro has appreciated significantly against sterling so far this year – whilst European equities have fallen by nearly 6%, for sterling investors they were unchanged.

China remains a threat to the global economy as it moves from an investment to consumer led economy. As it changes structure, inevitably jobs will be lost in the short run as workers shift from manufacturing to services. Inflation was 2.3% in February, above 1.9% expected, which might have been partly due to higher demand. More generally, Asia has benefitted from the pull-back in the dollar during the quarter, providing some short term relief.

Cameron announced the EU referendum will take place on 23 June. Nervousness over the vote has caused sterling to weaken against other major currencies, such as the euro and dollar since November. This movement in sterling should stimulate the real economy in the short run, as well as boost overseas investment returns. It is important to note, should the ‘leave’ campaign win, it would take at least two years for negotiations to take place.

Market

Index

Performance 2016 Q1 (% change) GBP

Performance

2015 Q1 – 2016 Q1 (% change) GBP

Performance 2016 Q1 (% change) Local currency

Performance 2015 Q1 – 2016 Q1 (% change) Local currency

UK

FTSE 100

0.07

-5.26

0.07

-5.26

US

S&P 500

3.75

4.45

1.18

1.12

Eurozone

FTSE Europe Ex-UK

0.97

-3.90

-5.94

-11.15

China

MSCI China

-2.38

-16.17

-4.73

-18.81

Japan

Nikkei 225

-2.53

-3.84

-11.95

-12.75

Emerging Markets

MSCI Emerging Markets

8.40

-9.14

2.73

-7.70

World

FTSE All World

2.95

-0.49

-1.35

-4.25

UK Gilts

FTSE All-Stocks

4.92

3.25

4.92

3.25

Our Strategic Asset Allocation

Portfolio

Cash/Bonds %

Equities %

Alternatives (e.g. Property/ Infrastructure) %

Cautious

50-90

10-40

5-20

Income

25-65

25-65

5-20

Ethical

25-65

25-65

5-20

Balanced

25-65

25-65

5-20

Growth

5-25

60-90

5-20

Adventurous

0

90-100

0-10

Current Portfolio Positioning

Cautious:

Bonds/Cash: 50, Equities: 39, Alternatives: 11

Income:

Bonds/Cash: 25, Equities: 65, Alternatives: 10

Ethical:

Bonds/Cash: 30, Equities: 56, Alternatives: 14

Balanced:

Bonds/Cash: 25, Equities: 65, Alternatives: 10

Growth:

Bonds/Cash: 5, Equities: 87, Alternatives: 8

Adventurous:

Bonds/Cash: 2, Equities: 91.5, Alternatives: 7.5

Our approach is to help our clients benefit from attractive equity returns and target sustainable dividends from a diversified portfolio, on the basis of our diligent research and analysis to highlight interesting investment opportunities and mitigate risk as far as possible.

[Jonny Rusbridge, Seabrook Clark Ltd, 5 April 2016]

Please note, our Investment Commentary is our view of markets and does not constitute investment advice. Past performance is not necessarily an indication of future returns; the value of investments and any income from them is not guaranteed and can fall as well as rise. If you would like investment advice on your individual circumstances, please do not hesitate to get in touch.

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